SignalPlus Vol Commentary (19 Jul 2024)
The bankrupt Bitcoin exchange Mt.Gox has reported multiple unauthorized login attempts to creditor accounts in the past 24 hours, raising concerns among creditors about the safety of remaining assets and potential selling pressure on Bitcoin. The market fears that this incident could negatively impact short-term Bitcoin prices. Coupled with a sharp drop in ETF traffic over the past two days, spreading risk aversion sentiment has led to asset sell-offs, causing BTC to fall below $64,000, once again testing the key support level.
Regarding options, the overall implied volatility level has stabilized after a significant drop yesterday, but it remains at a recent high. There are three notable changes to pay attention to. Firstly, the implied volatility (IV) and risk reversal (RR) for BTC at the end of December have both risen significantly, likely influenced by a large flow of buying 100,000-C on the Deribit market for this expiration date (see the chart below).
Secondly, the steepening of the BTC IV term structure is more pronounced compared to ETH. When comparing the end of July with other longer-term expiration dates, the gap between BTC expirations is more significant, providing a better tool for inter-term volatility hedging.
Lastly, we have also noticed a local high in the vol skew for 2AUG24 compared to surrounding terms. However, the trading patterns for BTC and ETH on this expiration date are quite different. BTC 70,000-C has seen significant buying, while ETH 3,400-C is facing strong selling pressure.
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